Safeway, the No. 2 U.S. supermarket chain, may be considering Kmart for purchase, Business Week reported in its "Inside Wall Street" column Thursday. An unidentified New York money manager said Kmart could fetch $30 a share in a buyout.

A combination would cut Kmart's costs because it could work with suppliers more directly and reduce use of outside distributors. Kmart's large size, in turn, would give a grocer more buying power with suppliers, and Kmart has expertise at selling basic household goods such as toothpaste at a discount.

"There's logic behind a combination between Kmart and a well-run supermarket company," said analyst Brian James of Loomis, Sayles & Co., which owned about 5.41 million shares as of March. "Kmart's top management has gotten better, but it's been difficult for them to motivate the people at the rank-and-file level to do better."

Chairman and CEO Floyd Hall in October said Kmart may consider a merger with a supermarket chain or food wholesaler to expand its grocery and drug selections.

The shares of Troy, Mich.-based Kmart on Friday rose $1.81 to $17 in trading of 16.6 million, six times the three-month daily average.

"That rumor has been around a long time," said Safeway spokeswoman Melissa Plaisance. "The focus of our acquisition strategy is on acquiring high-quality supermarket assets in the U.S., and that's been our focus now for some time."

Officials at Kroger Co., a supermarket chain often cited by analysts as another possible buyer, declined to comment.

The retailer also has been converting stores to its Big Kmart format, which have small grocery departments. The renovations aim to lure shoppers into the stores more frequently.

Still, Kmart is struggling to carve a place for itself alongside bigger, lower-priced rival Wal-Mart and the more fashion-oriented Target, a unit of Dayton Hudson Corp.

Some analysts had also speculated that Kmart might be interested in Richmond, Va.-based Richfood Holdings, the largest food distributor in the mid-Atlantic region, which includes states such as Virginia and Maryland.

SuperValu, the largest U.S. food distributor to supermarkets, last week agreed to buy Richfood for about $1.5 billion in cash, stock and assumed debt.